What does the front ratio calculation represent in debt ratio calculations?

The front ratio calculation specifically focuses on housing-related debt as a proportion of a borrower's gross monthly income. This ratio is essential for lenders to assess a borrower's ability to manage monthly housing expenses, which typically include principal, interest, property taxes, and homeowners insurance. By dividing housing debt by gross monthly income, the front ratio provides a clear picture of how much of a borrower's income is allocated towards housing costs, which helps lenders determine the borrower's capacity to take on more debt.

This distinction is crucial because gross monthly income reflects the total earnings before any deductions such as taxes and other expenses, offering a more comprehensive view of the borrower’s financial situation when evaluating their loan applications.